Dust Diseases Tribunal of New South Wales CITATION : Bradford Insulation (SA) Pty Limited v CGU Insurance Limited [2004] NSWDDT 47 PARTIES : Bradford Insulation (SA) Pty Limited CGU Insurance Limited MATTER NUMBER(S) : 362/02/03 JUDGMENT OF: Curtis J at 1 CATCHWORDS: :- LEGISLATION CITED: CASES CITED: DATES OF HEARING: 9,10 & 11/11/2004 DATE OF JUDGMENT: 11/25/2004 FOR CROSS CLAIMANT: Mr M J Neil QC with Mr E G H Cox instructed by Leigh Virtue & Associates. LEGAL REPRESENTATIVES: FOR CROSS DEFENDANT: Mr C S Leahy SC instructed by Hunt & Hunt. JUDGMENT: 1. This judgment concerns a claim by a South Australian employer upon its worker's compensation insurer for indemnity against the liability of the employer to pay damages and costs to an injured worker. The History 2. A plaintiff, Vincent Cutajar, was employed by the cross claimant, Bradford Insulation (SA) Pty Ltd (Bradfords) at Rosewater Adelaide between December 1964 and July 1965. His duties included packaging into small bags asbestos fibre allegedly supplied by CSR Ltd. He had previously been employed by James Hardie and Coy Pty Ltd (Amaca) for 6 months in 1960 to work in its factory in Brooklyn, Melbourne in the manufacture of asbestos cement building products. 3. In 2000 Mr Cutajar contracted lung cancer. 4. By statement of claim filed in the Tribunal on 2 September 2002, Mr Cutajar claimed damages from CSR Ltd, BI Contracting Pty Ltd and Amaca asserting that his cancer was caused by inhalation of asbestos fibres in consequence of the negligence of each defendant. (BI Contracting Pty Ltd was incorrectly named as the defendant, this slip was later corrected on the plaintiff's application.) 5. During the period that Mr Cutajar was employed by Bradfords at Rosewater, Bradfords held a policy of insurance with the New Zealand Insurance Company Ltd (NZI) indemnifying Bradfords against certain liabilities to injured workers. CGU Insurance Ltd (CGU) is heir to the liabilities of NZI. 6. The statement of claim was served upon Bradfords at 4.05pm on 3 September 2002. 7. By letter of 4 September 2002 Bradfords forwarded a copy of the statement of claim to Messrs Church and Grace, solicitors, who had acted for CGU in similar claims against companies within the Bradford group and asked for confirmation that CGU would grant indemnity. By reply of 6 September 2002 Church and Grace advised Bradfords that "We are obtaining our client's instructions on the question of indemnity." 8. No express agreement by CGU to indemnify Bradfords was confirmed until 18 September 2003 when Hicksons Solicitors, who by then had the carriage of the defence of Mr Cutajar's claim on instructions from CGU wrote to Windeyer Dibbs, solicitors for CSR Ltd of whom Bradfords was a subsidiary, in these terms: Please take notice that our client grants indemnity to Bradford Insulation (SA) (in liqu) in the sum of $100,000. Please also note our client reserves to itself a right to revisit the grant of indemnity pending a determination by the Court of Appeal of the Orica decision. 9. In the meantime much had happened. 10. On 12 September 2002 Messrs Church and Grace instructed Quark and Associates to carry out a "full factual investigation" including all necessary inquiries to comply with an order for verified discovery. On 13 September 2002 Church and Grace filed a notice of appearance for Bradfords. On 8 October Church and Grace sought particulars from the plaintiff's solicitors. Because of the possibility of a conflict of interest, later Church and Grace withdrew from the matter and Hicksons appeared in their stead. 11. On 23 May 2003 Messrs Hicksons wrote to Windeyer Dibbs who acted for CSR Ltd in the proceedings (effectively to Bradfords which was its subsidiary) in these terms; We refer to the writer's previous telephone conversations with Mr Sinnadurai and Ms Samolis and confirm we have received instructions from CGU Insurance Ltd to resume conduct of the defence of BI (Contracting) Pty Ltd (formerly Bradford Insulation (Contracting) Pty Ltd (BI). 12. On 6 June Hicksons commissioned Reidel Services to undertake a further factual investigation of Mr Cutajar's claim. On 25 June Hicksons responded to a notice to admit facts filed by the plaintiff's solicitors and made admissions, including an admission that "if" the plaintiff was exposed to asbestos dust and fibre in the defendant's factory at Rosewater during the period November 1964 and 31 July 1965 "then the second defendant (Bradfords) breached its duty of care to the plaintiff". 13. Hicksons did not oppose the plaintiff's application to substitute Bradford Insulation (SA) Pty Ltd for B I (Contracting) Pty Ltd as a defendant. Hicksons drafted the defendant's answers to interrogatories, drafted its defence, briefed Mr G Watson SC and attended to instruct him on 14 August 2003 when the trial of the plaintiff's action commenced in Adelaide. The plaintiff there gave evidence and was cross-examined by Mr Watson. The plaintiff on that day, by leave, filed in court an amended statement of claim in consequence of which the matter could not be swiftly completed. 14. After this succession of events, on 20 October 2003 Hicksons wrote to Windeyer Dibbs relevantly as follows: You will now be aware our client has withdrawn the grant of indemnity it made to Bradford Insulation (SA) Pty Ltd (in liquidation). We are in the process of preparing appropriate notices so that we can withdraw our appearance. 15. It should be here noted that the decision of the Court of Appeal in Orica Ltd v CGU Insurance Ltd (2003) 59 NSWLR 14, upon which Hicksons in their letter of 18 September 2003 intimated a decision to withdraw indemnity may depend, was not handed down until 11 November 2003. The decision at first instance was given on 7 June 2002 some three months before Church and Grace, on instructions from CGU, filed an appearance in the matter. 16. On 17 December 2003 Bradfords instructed Leigh Virtue and Associates to appear, and on 19 January 2004 the trial of the action recommenced in Adelaide. 17. On 30 April 2004 the plaintiff and Bradfords agreed to settle the proceedings for the sum of $75,000 damages plus costs agreed in the sum of $100,000. The Claim 18. Bradfords now claim indemnity from CGU against the verdict and costs paid to the plaintiff and additionally the sums of $8,092.66 paid to Hicksons for the release of their file and $138,438 paid to Leigh Virtue and Associates in respect of Bradfords costs incurred after 20 October 2003. 19. CGU concede that the sums paid to the plaintiff as damages and costs were reasonable. It suggests that the sum of $138,438 paid by Bradfords to its solicitors was excessive but calls no evidence in that regard and in particular does not disclose for comparison the amounts paid to its solicitors Church and Grace, and Hicksons. Because Leigh Virtue and Associates are an experienced and reputable firm standing at arm's length from Bradfords I accept that the sum was properly paid. 20. Bradfords claim alternatively: (a) pursuant to the policy of insurance (b) in reliance upon election or waiver by CGU (c) in reliance upon the doctrine of estoppel. Does the Policy Respond to the Risk? 21. The policy relevantly provides that "if [during the period of cover] any employee in the direct service of the insured shall sustain any personal injury by accident or personal injury by any of the diseases included in the second schedule in the "Workmens Compensation Act 1932-1954" at the date of the commencement of the indemnity hereby granted, while engaged in the service of the insured. . .then in case the insured shall be liable to pay compensation for such personal injury . . .at common law, the company[the New Zealand Insurance Company ] shall (subject to the limitations of amount hereinafter expressed) indemnify the insured against all sums for which the insured shall be so liable, and will in addition be responsible for all costs and expenses incurred with its consent in connection with any claim for such compensation. Provided always that the liability of the company in respect of all claims . . .at common law for such personal injury by accident or disease to or of any employee is limited to the sum of fifty thousand pounds £50,000 which sum shall include all damages costs and expenses." 22. CGU contends that these terms do not admit of the present claim because: (1) no injury was suffered by Mr Cutajar during the period of the cover (2) even if Mr Cutajar suffered from some injury in the relevant period it did not constitute injury "by accident" nor was it one of the diseases included in the second schedule in the Workman's Compensation Act 1932-1954 (SA) (3) even if Mr Cutajar suffered from some personal injury by accident within the period of cover, such injury was so trivial as not to amount to damage giving rise to an action at law and the policy only indemnifies against liability arising during the period of cover (the Orica defence). 23. S4(1) of the Workman's Compensation Act 1932-1954 (SA) required an employer to pay compensation in accordance with the Act, "if in any employment personal injury by accident arising out of or in the course of employment is caused to a workman", however the Act contained no definition of either the words "injury", "accident" or the composite phrase "injury by accident". Did Mr Cutajar Suffer Injury? 24. When Mr Cutajar inhaled asbestos fibres in the course of his employment with Bradfords, some of these fibres, rather than being respired with spent air, were trapped in the small airways, penetrated the parenchyma of his lung and there remained. By some yet unexplained process, the presence of these fibres set in train evolutionary physiological changes which in his particular case inevitably and inexorably led to the production of those mutant cells in the parenchyma which constituted the mass of his lung cancer. The process is similar to that which leads to changes in the cells of the mesothelium causing mesothelioma. All exposure is causative. 25. While no medical evidence is led before me, counsel for CGU concedes that I may apply the specialist knowledge of this Tribunal, and I do not understand the pathology to be in contest. 26. In terms of causation, the otherwise trivial injuries of the penetration of the lung by fibres in this case must be seen as indistinguishable from their dire consequences no less than the otherwise trivial injury by mosquito bite in Favelle Mort Ltd v Murray (1976) 133 CLR 580, could not be distinguished for legal purposes from its disabling effect. The injuries in each case did not create the risk of contracting a disease, they directly caused the diseases in question. 27. Both Mason P and Santow JA in Orica Ltd v CGU Insurance Ltd held that the inhalation of asbestos fibres in such circumstances may be fairly described as an "injury" within the context of New South Wales workers' compensation legislation. 28. I find as a fact that in this case the lodgement of asbestos fibres in the lung of Mr Cutajar during the period of his employment with Bradfords constituted injury within the meaning of the policy. Was the Injury "By Accident" 29. Not being capable of single precise and exact definitions for all purposes, the words accident and accidental tend to take their particular meaning from context. The Shorter Oxford English dictionary includes for accident, the meanings "1. an event that is without apparent cause or unexpected; an unfortunate event, esp. one causing injury or damage; 2. chance, fortune" and for accidental, "4. happening by chance, undesignedly or unexpectedly". 30. Within the context of policies of insurance, the use of the word accident to qualify injury may be seen as intended to delineate those occurrences or events for which an insurer is willing to indemnify from those for which it is not. Thus an insurer may by use of the word "accidental" intend to exclude injuries by way of foreseeable and natural progressions of diseases or degenerative processes such as heart disease (Re Scarr and General Accident Insurance Corporation [1905] 1KB 387) or injuries caused by foreseeable exposure to natural elements such as sunstroke aboard a ship (Sinclair v Maritime Passengers Assurance Co (1861)3 E&E 478). 31. In like manner, in Fenton v Thorley and Co Ltd [1903] AC 443, Lord MacNaughten observed that within the context of the Workmens Compensation Act 1987 (UK) the words "by accident" qualifying injury, were intended to " [confine] it to a certain class of injuries excluding other classes as for instance injuries by disease or injuries self inflicted by design". His Lordship there held that in the context of that legislation ". . .the expression "accident" is used in the popular and ordinary sense of the word as denoting an unlooked for mishap or an untoward event which is not expected or designed." (at 448) 32. In the present case it can scarcely be contended that the lodgement of asbestos fibre in Mr Cutajar's lung was intended by him or his employer, that it was the result of an autogenous process in his body or that it was the product of exposure to the natural elements in air. It was unintended, unforeseen and in the plainest meaning of the word, "accidental". 33. Similarly it is plain that during the period of cover, Mr Cutajar suffered no injury by disease. His disease occurred many years later albeit as a result of the personal injury occurring during the period of cover. 34. I find as a fact that Mr Cutajar sustained personal injury by accident within the period of the cover. 35. This conclusion is assisted by a consideration of the disease provisions in the Workman's Compensation Act 1932-1954 (SA). 36. Part IX of this Act under the heading "Industrial Diseases" provided relevantly as follows: s82 Where- I. any certifying medical practitioner certifies that a workman is suffering from a disease and is thereby disabled from earning full wages at the work at which he was employed; or II. the death of a workman is caused by any such disease, and the disease is due to the nature of any employment in which the workman was employed at any time within the twelve months previous to the date of the disablement, whether under one or more employers, the workman or his dependants shall be entitled to compensation under this Act as if the disease were a personal injury by accident (emphasis added) arising out of and in the course of that employment, subject to the following modifications;- (a) the disablement shall be treated as the happening of the accident (b) . . . (c) . . . For the purpose of this Part a disease shall not be regarded as being due to the nature of the employment in which a workman was employed, unless it was caused by the nature of the work which he was employed to do. S89. If the workman at or immediately before the date of the disablement was employed in any process mentioned in the second column of the second schedule, and the disease contracted is the disease in the first column of that schedule set opposite the description of the process, the disease, except where the certifying medical practitioner certifies that in his opinion the disease was not due to the nature of the employment, shall be deemed to have been due to the nature of that employment, unless the employer proves the contrary. S94. Nothing in this Part shall affect the rights of a workman to recover compensation in respect of a disease to which this section (sic) does not apply, if the disease is a personal injury by accident within the meaning of this Act. 37. It may be arguable that the indemnity granted by the policy here in question does not extend to a liability to indemnify in respect of industrial diseases where disablement occurs later than the period of cover because it is the date of disablement which is deemed to be the date of personal injury by accident. I have been taken to no South Australian authorities which addressed issues such as those raised in Fisher v Hebburn Ltd (1960) 105 CLR 188, State Mines Control Authority v Government Insurance Office of NSW (1964) 65 SR (NSW) 258 and Orica Ltd v CGU Insurance Ltd (supra). In any event the question need not be here decided because of my finding of fact and because of the provision of s94. 38. Accepting that it is the wording of the policy which must be construed rather than the terms of the relevant act which requires that a policy be taken out (Sydney Turf Club v Crowley (1972) 126 CLR 420) the provisions of the particular act may nevertheless assist in determining the proper construction of the policy (Orica Ltd v CGU Insurance Ltd per Spigelman J at 19). This is so even when the existence of the present policy, although mandated by s109 of the Workman's Compensation Act 1932-1954 (SA), was not required to be in any particular statutory form. 39. Part IX of the Act does not apply to diseases caused by the nature of employment unless the worker was engaged in such employment within the 12 months previous to his disablement, or, in the case of scheduled diseases, at or immediately before the disablement. Nevertheless s94 of the Act makes it quite clear that a pathological event entitling a workman to compensation (and his employer to indemnity) may constitute both an injury simpliciter and the contraction of a disease as was the case in Favelle Mort v Murray (supra). (It does seem that the word "section" in s94 should be read as "Part"). Is the Indemnity Limited to Legal Liability which arises during the Period of Cover? (Orica Ltd v CGU Insurance Ltd (2003) 59 NSWLR 14) 40. The policy in Orica relevantly provided that: If , between. . .and . . . the employers shall be liable to pay compensation . . .or an amount. . .in respect of his liability independently of the Act for injury to any. . .person. . .then and in every such case the insurer will indemnify the employer.(emphasis added) 41. In this case the policy relevantly provides that: If [during the period of cover]. . . any employee . . . shall sustain personal injury by accident . . . then in case the insured shall be liable to pay compensation. . .at common law the company shall. . .indemnify the insured. . ." (emphasis added) 42. There is no requirement in this policy that the liability should arise during the period of cover. The word "then" here denotes an occurrence afterwards or next in order of time as in the title of WB Yeats' poem "What Then?". 43. This plain meaning accords with the triggers of liability to pay compensation contained within the Workman's Compensation Act 1932-1954 (SA). The policy insured against the liability to pay compensation pursuant to this Act. Such a liability to pay money to an injured worker (rather than to his dependants in case of injury causing death) only arose when the worker suffered incapacity (s18) or incurred hospital or medical expenses (s18(a)) or permanent impairment (s26). The liability to pay hospital and medical expenses only arises when these have been incurred, at some time subsequent to the injury. Similarly, "incapacity" a term denoting both physical impairment and economic loss does not always immediately arise upon an injury as in those cases where a worker labours on for a time in the hope of spontaneous improvement. 44. I find that the policy responds to the risk and CGU is liable to indemnify Bradfords in respect of Mr Cutajar's claim. Against the possibility that I am wrong in this I address the alternative claims. If the Policy does not Respond is CGU nevertheless liable upon the policy by reason of Election or Waiver ? Election and Waiver 45. Notwithstanding the failure of CGU through its solicitors Church and Grace to confirm in writing its acceptance of an obligation to indemnify without qualification, I find that CGU by the conduct of those solicitors, and later Hicksons, represented to Bradfords an acceptance of such an obligation prior to 18 September 2002 when acceptance of the liability to indemnify was qualified and 20 October 2002 when CGU changed its mind altogether and indemnity was denied. 46. It is the contention of Bradfords that CGU by its conduct in initially accepting the obligation to indemnify without qualification, irrevocably elected to be bound by the policy or, in the alternative, irrevocably waived its right to deny indemnity in reliance upon the precise wording of the policy. 47. The principles applicable to election are stated thus by Mason, Brennan, Deane and Dawson JJ in Khoury v GIO [1983-1984] 165 CLR 622 at 633: A person confronted by two truly alternative rights or sets of rights, such as the right to avoid or terminate a contract and the right to affirm it and insist on performance, may lose one of them by acting "in a manner which is consistent only with his having chosen to rely on [the other] of them". Where an insurer is confronted with such alternative rights and elects to affirm the contract of insurance, he is commonly said to have "waived" the right to avoid or terminate it. While actual "prejudice to the other side" may be relevant, particularly in determining whether an election should be imputed to a person who is not shown to have made a conscious decision to elect, it is not necessary that such prejudice be demonstrated to establish a completed election between the right to affirm and the right to avoid a contract. An election, unlike estoppel, is concerned with what a party does and not what he causes the other party to do. At the latest, it is complete or "final" when made and "communicated" to the other side. [authorities omitted] 48. In Nigel Watts Fashion Agencies Pty Ltd v GIO General Ltd (1995) 8 ANZ Insurance Cases 75-638 at 61-235 Handley JA said: The doctrine (of election) in its application to contracts of insurance, prevents an insurer from adopting inconsistent positions under the same policy. An insurer receiving a claim who is entitled to avoid the policy or reject the claim for breach of condition must make an election. In the first case the insurer must either affirm or avoid the policy and in the second it must waive the breach and accept the claim or rely on the breach and reject it. If, having the requisite knowledge of the facts, it asserts rights which would only exist if the policy was in force and covered the claim it will be taken to have elected to treat the policy as valid and applicable to the claim. 49. These principles are relatively straightforward. Where a policy does not respond to the claim however there is simply no relevant contract of insurance on foot establishing alternative rights of avoidance or affirmation. The question of election cannot arise. "Acceptance by an insurer of a claim by an insured to which the policy does not extend cannot amount to an election" (per McClelland J, Transfield Pty Ltd v National Vulcan Engineering Insurance Group Ltd (2003) ANZ Insurance Cases 61-547 at 76.440. See also Freshmark Ltd v Mercantile Mutual Insurance (Aust) Ltd 1994 2 QdR 390). 50. As to waiver there is a certain incongruity in the assertion by the cross claimant that the conduct of CGU constituted a waiver of its right to be unburdened by the terms of a contract of insurance which, upon the premises, did not exist. 51. I find that, if the policy does not respond to the risk, CGU has not irrevocably elected to treat the policy as binding nor waived its right to assert that in accordance with the terms of the policy it is not bound to indemnify Bradfords. Is CGU by its Conduct Estopped from denying that the Policy Responds to the Risk? 52. Although differing from the majority of the court on the legal implication of the particular facts, Mason CJ's statement of the law relating to estoppel in The Commonwealth v Verwayen (1990) 170 CLR 394 at 413 is uncontentious and consistent with the reasons given by all members of the court. He stated: The result is that it should be accepted that there is but one doctrine of estoppel, which provides that a court of common law or equity may do what is required, but not more, to prevent a person who has relied upon an assumption as to a present, past or future state of affairs (including a legal state of affairs), which assumption the party estopped has induced him to hold, from suffering detriment in reliance upon the assumption as a result of the denial of its correctness. A central element of that doctrine is that there must be a proportionality between the remedy and the detriment which is its purpose to avoid. 53. The first elements necessary to give rise to an estoppel, representation and inducement, I find to be established. By filing an appearance through its own solicitors Church and Grace, and thereafter conducting the proceedings, CGU represented to Bradfords that it would indemnify Bradfords, and induced Bradfords to cede conduct and control of the litigation to CGU. 54. The question then arises as to what detriment was suffered by Bradfords in consequence. 55. Bradfords assert that the detriment is to be found in its liability for excessive legal costs and that had Bradfords been in control of the litigation throughout it may have achieved an earlier settlement thereby reducing both the plaintiff's and its own costs. 56. The loss of the opportunity to control the conduct of litigation constitutes a very real detriment. The evaluation and selection of expert witnesses can have a significant effect not only on the prospects of success but on the apprehension of probable defeat and consequent prudence in settlement negotiations. The party in control of litigation is unconstrained in risking significant further legal costs against the possible reward of securing more advantageous settlement terms from the opposing party. 57. Amaca settled with the plaintiff on the morning of the second day of hearing (19 January 2004) upon agreeing to pay $40,000 by way of verdict and his costs agreed in the sum of $20,000. 58. The plaintiff has received verdicts totalling $115,000 (including $40,000 from Amaca) after the parties generated legal costs probably in excess of $400,000 being $120,000 paid to the plaintiff's solicitors ($20,000 from Amaca), $138,438 paid to Bradfords' solicitors, probably an equal amount paid by CGU to its solicitors, Church and Grace and Hicksons, and $8,092 paid by Bradfords to Hicksons for the release of its file. The legal costs are disproportionate to the result. 59. Had Bradfords retained its own solicitors to conduct litigation settlement negotiations in Bradfords' interests would have been directed by Mr E D Miller, general legal counsel for CSR who controlled to sufficient extent the actions of Bradfords. 60. Mr Miller took a perhaps unduly optimistic view of CSR's chances of defeating the plaintiff's claim but a realistic view that Mr Cutajar would succeed in establishing the liability of Bradfords for his lung cancer. In evidence before me he gave good reasons for the more realistic of those beliefs which related to the relative expertise and credibility of the plaintiff's expert, Professor Shilkin, and the defendant's expert, Mr Rogers, on the issue of fibre burden in the plaintiff's lung. 61. Mr Miller's opinion was apparently not shared by CGU who instructed Hicksons to make a joint offer from Amaca and Bradfords to the plaintiff on 16 September 2003 in the sum of $60,000 plus costs upon the stated basis that "the Tribunal may accept that the plaintiff suffers from asbestos related pleural plaques but not lung cancer". 62. In answer to the suggestion that after Bradfords took control of the litigation in September 2003 no quick settlement ensued, it may be observed that the experience of litigators is that once settlement negotiations reach an impasse, legal costs very quickly escalate, parties and their lawyers become more intransigent in the face of these costs and settlement becomes increasingly difficult. The trial of the plaintiff's action commenced on 18 August 2003 in Adelaide, resumed in Adelaide on 19 January 2004, continuing there on 20 and 21 January 2004, and in Sydney on 22 and 23 January 2004 before settling on 30 April 2004. 63. I accept the evidence of Mr Miller and find that as a result of CGU's representations Bradfords lost a real chance of saving legal costs, both its own and those of the plaintiff for which it was liable. The combined costs for which Bradfords became liable amount to $246,530.66 (see pars 17 and 18 supra). I find the value of that lost chance to be $100,000. Conclusion 64. Bradfords is entitled pursuant to the terms of the policy to be indemnified by CGU in respect of Bradfords' liability to the plaintiff in the sum of $100,000 being the limit of cover. 65. Bradfords is entitled to damages in the sum of $146,530 in consequence of the breach by CGU of the term of the policy that CGU would be responsible for all costs and expenses in connection with the plaintiff's claim. Orders 66. Judgment for Bradfords against CGU in the sum of $246,530. I will hear the parties on costs. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.